Will interest rates rise?

While many forecasters are answering yes to the question of “Will interest rates rise?”,  those forecasts do not factor into account a failure of the government to raise the debt ceiling by August 2nd.

If the debt ceiling is not raised, the prospects of interest rates rising will increase substantially, most notably if a deal to raise the debt ceiling is not reached in the immediate aftermath of the August 2nd deadline.

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The government will have to choose who will not get paid.   If U.S. treasury bond holders do not receive their interest payments on the due date, as promised, the fallout will be immense.    The triple  AAA Treasury rating may be reviewed and downgraded by Standard and Poors and Moody’s.    If this occurs, and even if it does not occur, current purchasers of treasuries may not purchase treasuries, or reduce their volume of purchase, due to the fact that the issuer, the U.S. government is unwilling, or unable to pay.

Those that are wish to continue purchasing U.S. treasuries may begin to want, ask for, or demand a higher interest rate payout.   Simply a drop in demand for treasuries may force a rate increase in order to increase demand for treasuries.

Politicians should be acutely aware that creditors lose interest dramatically in purchasing bonds for which interest payments are not assured.

A default or delay in interest payments by the treasury will dramatically increase the necessity of an interest rate increase on treasuries, which will force an increase in the prime lending rate, which will then force an general increase in loan rates across the board.

Note to politicians, understand and be be carefull what you wish for.